The 10 Question Guide to Financial Stability for Agencies Part 2

Posted by Deltek on April 9, 2020

agency financial stability part 2

We are back with Part 2 of our 10 Question Guide to Financial Stability for Agencies, where Vincent Dong of Ad-Vice Software answers questions and shares financial best practices for agency leaders.

Can/should I start renegotiating things like rent, insurance, health coverage and other long-term agreements? What is the best strategy to pursue for this kind of cost-cutting?

This is the next thing your CFO needs to move on to ranging from largest to lowest monthly expenditures. It is likely that the RENT figure is the next one after salaries. Ask the landlord for a 3 month delay in paying rent. Ask the bank to defer loan payments for three months. Ask your licensing vendors for a three month delay on payments. This is not only an important and imperative cost cutting but also cost deferral exercise.

What do I do if my clients’ payments are slow?

For those of you with close relationships, find out of the nature of the slow down. EVERY company is protecting their cash today until they know what the future holds. Do NOT send collection agencies after your slower-paying clients. You will be remembered for what you DID do and did NOT do during this time.

In the meantime, you have to make the judgement call from you sensitivity analysis your CFO prepared to determine who to pay noting the slower paying clients.


 

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Should we look at the way we bill? As we plan for a recession, should we be doing more project work or retainer work? Is one better than the other?

I would rather look at what you do best and earn the greatest margins in. In addition, if you are able to maximize on this work, you could have the latitude to do more controllable lower-margin work. If that connects to either, project or retainer work, then great.

I find that agencies who secure themselves with retainer clients offer the full suite of marketing and advertising services. Agencies with more project work often have to spend more time “selling” the concept for the work to be signed off by a client.

Agencies performing a blend of both are ideal. As for the billing idea, ALWAYS bill as much as possible up front. That way, you don’t have to send collection agencies after your clients!

What alternatives are there to laying-off my staff?

(This was written before the paycheck protection program.)

  1. Owner(s) should take immediate pay cuts in order to save the staff particular if the client work will return.
  2. Executives should take a salary cut ranging from 10%-25%. Thereafter, salary cuts company-wide.
  3. All related HR spending including memberships, allowances, travel per diems, training, education costs etc. should be put on hold for three months.

What’s the best way to diversify income streams? What analysis will tell us what to do?

The answer to this question depends on the software program you are using and the management reporting that you are able to pull from the program in order to see what the net profit each of your income streams is.

The reports you need are sales class-based, function/service code-based, project profitability-based, employee realization/recovery-based all of which are separate from the company’s income statement.

Thereafter, it is a matter discussing the quantitative analysis with a qualitative bent with the management team as it is not merely a matter of diversifying income streams. Consideration should be given to bench strength, different industry focuses and what type of agency does your company feel it is. For example, are you a crisis management firm that services the health care industry and if so, you should be offering every possible type of revenue stream to that particular hospital network.

Looking for more advice on how to bring stability to your agency or in-house creative team? Watch our on-demand webinar Recession-Proof Your Agency: Best Practices to Weather a Financial Storm for more insights from Vincent. 

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